Buy now, pay later sites are websites or apps that allow consumers to purchase products now, but pay the full amount over time with a number of smaller instalments. If the consumer can’t afford the full cost of a purchase right now, they can use a buy now, pay later service (like Afterpay) to make the payment for them. The merchant still gets paid (usually within two business days) while the consumer receives their desired products and services, and then pays the rest to the service provider in instalments. A $100 purchase for example, becomes four $25 payments over four weeks with Afterpay. The difference between this and a credit card, is that you don’t pay any interest.
Buy now, pay later creates more flexibility for consumers as they don’t need the full amount in cash to buy an item. This allows them to take advantage of limited time sale periods for example. It’s a great way to attract consumers who are willing to spend but don’t want to save the money up beforehand. Buy now, pay later options can be used both online and instore and have already been widely adopted in retail, fashion, homeware, and hardware stores. They appear alongside your other payment options at checkout and can be included in your online store through an API or plugin. Keep in mind that you’re able to offer multiple buy now, pay later services. Your customers will always appreciate a variety of payment options.
Payment schemes for the consumer differ between buy now, pay later providers. The main buy now, pay later providers are: Afterpay, Laybuy, PartPay, OxiPay, ZipPay, and OpenPay. Each provider has different time periods in which consumers need to pay back the cost of the items. Any additional fees also depend on the provider. In most cases if the payment deadlines are met then there is no additional fee (for example, a late payment fee).
Some providers may also run a credit check to make sure customers are able to pay off their purchases. In New Zealand the buy now, pay later option is available to customers over the age of 18 with credit or debit card details and a valid New Zealand ID. Popular stores such as Glassons, Cotton On, and Farmers all offer buy now pay later options to their customers. The benefit for retailers is that it captures customers who would have normally abandoned purchasing due to their financial situation at the time. Instead, it creates sales out of customers who may not have been able to follow through with purchases in the past and opens the market for new customers. Put simply, buy now, pay later services are an interest-free alternative to credit cards where consumers can see their individual purchases being paid off.
Afterpay has over 200,000 users in New Zealand. To use this service, customers need to create an account and provide details such as their name and credit/debit card details. Merchants can adopt it in their online store through the API or their integration with popular e-commerce platforms such as Shopify, Magento and WooCommerce. Once set up, Afterpay appears as a payment option at checkout. Retail sales through Afterpay totalled NZ$2.4 billion as of March 2019. More than 10% of online sales in Australia are now made using Afterpay and it claims to have attracted one in every four millennials to its platform.
Afterpay states that the benefits of their service are that customers end up spending more per transaction, and then continue to come back. According to a consumer survey by independent finance product website, Mozo, 50% of Afterpay users said they spent more using Afterpay than when using a debit or credit card. Furthermore, 64% of respondents said that being able to make smaller, spaced out payments was influencing them to make purchases they wouldn’t have normally made if it was an upfront transaction. Katherine Mamontoff from MAC is quoted on the Afterpay website that close to half of MAC customers are using Afterpay and spending 14% more on their purchases as well.
Laybuy is a New Zealand buy now, pay later provider with over 180,000 users in New Zealand. It’s also available in approximately 200 physical stores such as Glassons, Hallensteins, Stirling Sports, and North Beach. To use this service, customers need to create an account with their name and credit/debit card details.
Laybuy performs a credit check of all new users upon registration to obtain a credit score. Once the credit score has been approved and the account has been verified, Laybuy assigns the purchase limit and shopping can begin immediately. Laybuy is available as a payment option in multiple online stores, and customers can select the option at checkout. Merchants can add Laybuy to their website using the API.
PartPay is another New Zealand owned provider of the buy now, pay later service. Like the others, it can be used in-store or online and has plug and play integration with popular e-commerce platforms such as Shopify, Magento, and WooCommerce. Laybuy also provides free installation for merchants using Magento. PartPay CEO John O’Sullivan says PartPay, which was launched in June 2017, has seen rapid growth in the number of retailers and consumers it has on its books. He says it has undertaken more than 250,000 transactions since launching.
OxiPay is an established service owned by the same New Zealand company offering finance through the popular Q Card. For retailers already accepting Q Card, this is an easy add-on that can be incorporated in the online checkout process like the other buy now, pay later services. Once again, customers need to create an account to use the service. Retailers such as Rebel Sport, Briscoes, Farmers, and Whitcoulls all offer OxiPay. FlexiGroup NZ CEO Chris Lamers says it launched Oxipay in New Zealand in August 2017. He says the buy now, pay later market is thriving and the company’s customer base is growing by almost 15% a month.
Zip Pay has over 800,000 users in Australia. Zip Pay differs from the majority of the other buy now, pay later services as it allows the customer to tailor their payments to suit their lifestyle (weekly, fortnightly or monthly). At the beginning of the month, the buyer gets a statement of what they have spent and paid in the previous month. It is up to the customer to then pay the balance back in full at the end of the month, or pay over time from $40 a month, interest-free. Zip Pay also separates their services into two categories: Zip Pay, and Zip Money. Zip Pay is for purchases under $1000, and Zip Money is for anything over that amount.
Zip Pay states that by having their buy now, pay later option customers are more likely to checkout, resulting in up to 30% increase in conversions. Additionally, customers checkout with an above average basket size, up to 70% increase in order value. Furthermore, customers are more likely to come back, up to 80% increase in repeat purchases.
To use Openpay, customers need to download the app for Android or iOS, sign up and gain approval. Openpay can then be selected as a payment option at the online checkout or in-store. The biggest difference between Openpay and other buy now, pay later services is that it’s designed for bigger purchases, with a maximum limit of $10,000. In turn, it gives the buyer more time to pay.
Having more time to pay means customers are more comfortable spending and using the service. It creates a loyal repeat customer base who shop more frequently and spend higher amounts. In women’s fashion, Openpay found a 77% increase in repeated customers with a 116% increase in the average transaction value. Openpay service is popular in home improvement, healthcare, retail, automotive sectors.
Buy now, pay later services are currently unregulated in Australia and New Zealand. Recent Australian reports have recommended regulation of these services however, and it is speculated New Zealand will soon follow. Currently, since the providers do not charge interest or fees, they do not need to comply with requirements under the Credit Contracts and Consumer Finance Act 2003. Therefore, they do not need to check a customer’s financial records to see whether they are able to pay back the amount spent. Additionally, a consumer can easily use multiple buy now, pay later services and have multiple transactions across different providers.
Consumers also are not protected under the Fair Trading Act 1986 as buy now, pay later services do not fall under “layby sale agreements”. Nevertheless, they are still required to be registered on the Financial Service Providers Register and have restrictions around being involved in misleading or deceptive conduct.
In a report released by the Australian Senate Economics References Committee, a regulatory framework was recommended. This is so providers take into account the financial situations of their customers before letting them use the service. It also recommended that hardship provisions be offered, products listed are affordable, consumers are properly informed, and that dispute resolution is accessible.
In New Zealand, Minister of Commerce and Consumer Affairs, Hon Kris Faafoi, stated the buy now, pay later services do not need to be brought under the Credit Contracts and Consumer Finance Act 2003. This could change however if there was more evidence to reflect it caused harm to consumers. In turn, it is suspected that this may lead to a new regulatory framework focusing on requirements of who is able to use the buy now, pay later services, discussing whether fees are reasonable, and ways to handle disputes.
A report by the Australian Securities and Investments Commission (ASIC) found that buy now, pay later providers were influencing the spending habits of consumers. It found that the number of consumers who have used buy now, pay later services had increased from 400,000 customers (2015 to 2016) to 2 million (2017 to 2018). Additionally, the number of transactions increased from around 50,000 in April 2016 to 1.9 million in June 2018.
Buy now, pay later services also help increase the average order value and revenue brought in from customers. It makes it easier for customers to purchase products and become comfortable with spending. If a customer only has $40 to spend on clothes, the maximum revenue a store they choose to shop at can receive is $40. This changes when buy now, pay later options are available as it gives consumers the ability to stretch their original budget.
The potential of customers to come back increases when they have a positive experience spending money with a buy now, pay later service. It sets the merchant apart from competitors who may not provide the same option.
When selecting a buy now, pay later provider take into consideration the type of plan that would suit your target audience. What spending limit would suit your customer if they wanted to buy something from your store? What time period would work best for them to make the payments? If they were behind on a payment, how much of a late fee would they be willing to pay?
Merchants can also look at each provider’s store directory to get an idea of the type of brands that are using a particular buy now, pay later provider and whether their business operates in a similar space. The store directory also reflects the audience that the provider is targeting.
When comparing the different providers, merchant fees can be a distinguishing factor. Merchant fees are charged as a percentage of the total sale amount. While these fees may not affect larger businesses so much, smaller businesses will have to consider whether the benefits are worth the cost.
AfterPay ‐ 30c per transaction plus commission of 4%-6%.
Laybuy ‐ Exact percentage of commission not advertised. Likely to be negotiable.
PartPay ‐ Exact percentage of commission not advertised. Likely to be negotiable.
OxiPay ‐ Exact percentage of commission not advertised. Likely to be negotiable.
Zip Pay ‐ Approximately 5% per transaction. Better rates available the more transactions processed through Zip Pay.
OpenPay ‐ Dependant on size and type of business.
There is no denying that the number of customers using or wanting to use buy now, pay later options is on the rise. Consumers are looking for flexibility and instant gratification. They want the product now and the ability to pay off smaller amounts over time. Businesses that haven’t incorporated a buy now, pay later option could be missing out on a large part of the market. The buy now, pay later trend seems to be on a constant rise and is even resulting in governments suggesting that the industry be regulated. For now though, it’s up to each business to decide whether the benefits outweigh the cost, both for themselves and their customers.
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